menu – Virag Consulting

Schrödinger’s Combo Product

NADA has recently published a model policy for properly selling F&I products, i.e., without running afoul of the Attorney General. It includes the disclosure formerly known as the AutoNation Pledge, and a new procedure which seems to be taking the place of the old-school waiver form. I say “seems” because there is no mention of the old form, which I believe has something to do with nuclear physicist Erwin Schrödinger.

Prior to the sale of a VPP, the Dealership will request the customer’s acknowledgement of the election to purchase or decline each selected VPP or VPP bundle.

As everyone knows, subatomic particles exist in an indeterminate state until they are pinned down by measurement. For example, if you have a radioactive isotope of Cesium, you can’t tell whether it has decayed until you aim your Geiger counter at it. Not only can you not tell what state the atom is in, it is not definitely in any state until you measure it.

To show how this contrasts with traditional physics, Schrödinger proposed the following thought experiment. Imagine there is a cat in a box with the Cesium rigged to kill the cat when it decays. According to the Uncertainty Principle, the cat is both alive and dead at the same time.

Similarly, the F&I waiver requires each product to be either accepted or declined. You bought the dent protection, so it prints in the green column, but you turned down roadside assistance. It prints in the red column. To save a few dollars, you are willing to leave your family stranded. Please sign here to confirm.

But what if dent and roadside – and key and windshield – are part of the same bundle? You only bought one of the components, so it would be misleading to print it in the green column. On the other hand, you are not going to confirm declining the bundle, because you did buy part of it. So, in which column does this product belong?

Here are some ideas:

The menu system should account for the child products and print them individually on the waiver. It should also count them separately as product sales.
The menu system should print the coverage description, and the coverage description should state which components were accepted.
Providers should offer bundles all or nothing, and not allow them to be split up.

Unlike Schrödinger, you will not win the Nobel Prize for solving this one – but you can provide some guidance to your fellow F&I practitioners. Click the link below to register your answer.

Analytics for Menu Presentation

Last week, I presented a single-column format for menu selling on an iPhone, with the glib recommendation to let analytics determine the sort order. Today, I will expand on that. Our task is to sort the list of products in descending order of their relevance to the current deal, which includes vehicle data, consumer preferences, and financing terms.

This sorting task is the same whether we are flipping through web pages or scrolling down the mobile display. The framework I present here is generalized and abstract, making the task better suited to automation, but ignoring the specific F&I knowledge we all take for granted. I’ll come back to that later.

For now, let’s assume we have six products to present, called “Product One,” and so on, and four questions that will drive the sorting. Assume these are the usual questions, like, “how long do you plan on keeping the car?”

That answer will be in months or years, and the next one might be in miles, but we are going to place them all on a common scale from zero to one (I warned you this would be abstract). Think of using a slider control for each input, where the labels can be anything but the range is always 0.0 to 1.0.

Next, assign four weights to each product, representing how relevant each question is for that product. The weights do not have to be zero to one, but I recommend keeping them all around the same starting magnitude, say 1 to 5. Weights can also be negative.

For example, if there’s a question about loan-to-value, that’s important for GAP. High LTV will correlate positively with GAP sales. If you word that question the other way, the correlation will still be strong, but negative. So, now you have a decision matrix that looks something like this:

Yes, we are doing weighted factor analysis. Let’s say that, for a given deal, the answers to our four questions are, in order:

[0.3, 0.7, 0.1, 1.0]

To rank the products for this deal we simply multiply the decision matrix by the deal vector. I have previously confessed my weak vector math skills, but Python has an elegant way to do this.

Product Two ranks first, because of its affinity for high-scoring Question Four. Product Four takes second place, thanks to the customer’s response to Question Two – whatever that may be. By now, you may have noticed that this is the setup for machine learning.

If you are blessed with “big data,” you can use it to train this system. In a machine learning context, you may have hundreds of data points. In addition to deal data and interview questions, you can use clickstream data, DMS data, contact history, driving patterns (?) and social media.

If not, you will have to use your F&I savvy to set the weights, and then adjust them every thousand deals by manually running the numbers.

For example, we ask “how long will you keep the car?” because we know when the OEM warranty expires. Given make, model, and ten thousand training deals, an AI will dope out this relationship on its own. We can do it manually by setting one year past the warranty as 0.1, two as 0.2, etc. We can also set a variable indicating how complete the manufacturer’s coverage is.

Same story with GAP. Give the machine a loan amount and a selling price, and it will “discover” the correlation with GAP sales. If setting the weights manually, set one for LTV and then calculate the ratio for each deal.

Lease-end protection, obviously, we only want to present on a lease deal. But we don’t want it to crowd out, say, wearables. So, weight it appropriately on the other factors, but give it big negative weights for cash and finance deals.

I hope this gives some clarity to the analytics approach. In a consumer context, there is no F&I manager to carefully craft a presentation, so some kind of automation is required.

Menu Selling on an iPhone

Followers of my Twitter feed know that I have lately been looking at mobile apps, to see if anyone can present protection products on an iPhone. I wrote about this three years ago and, according to my informal survey, the field is still open.

I don’t think anybody has a good way to present a menu on a consumer web site, much less an iPhone.

Not only is the iPhone a restrictive form factor but we must assume that the customer, not an F&I person, is operating it. We would like to apply our Best Practices for Menu Selling, but the app must be able to apply them on its own.

For example, if we want to retain the package concept with the carefully chosen payment intervals, we can use an accordion control. I proposed this for a client once, in an F&I context, but it doesn’t make sense for consumer use.

No, the best way to “present all the products, all the time,” is simply to make one long column with everything in it. The iPhone presents challenges, but there are offsetting advantages. We can show fifteen products in one column, and the customer has his leisure to scroll through them.

I prefer scrolling to swiping for a few reasons. In the prototype shown here, we have the obligatory vehicle photo. After the first scroll, that’s gone and the screen space is devoted to products.

The prototype shows monthly prices for the vehicle and the products. This assumes the finance process is settled, and the app can choose products matching the finance term. Touching any of the products will open up a full page with details, coverage choices, and a “sales tool” as in the earlier article.

I recommend using analytics to determine the sequence of products in the column, and even to A/B test the format of the product blurbs. I have in mind a few different formats:

Text with graphic and price, as shown here.
No price ‘til you open it.
Lead with the sales tool.

I discuss analytics here, but I am not a fan of the full “ownership survey.” Of the eight standard questions, maybe you can sneak in one or two elsewhere in the process. Apart from that, we’re counting on data points found in the deal itself.

I also think “less is more” when confronting the customer with choices. As you can see in the mockup above, there must be no complicated grades of coverage (or deductible). If you’re configuring the app for a specific dealer, you may want to filter some options out of the dealer’s product table.

Depending on who’s managing the app, the products themselves may be rethought. If you want to offer chemical, dent, key, and windshield as a combo product, then that’s a single choice. Alternatively – since we have unlimited column space – you can offer each one individually. What you do not want is a product having fifteen different combinations.

Coming back to my informal survey of mobile apps, and the workflow given here, I believe there are already good examples of vehicle selection, credit application, trade valuation, and payment calculator. Menu selling has been the only missing link, until now.

Best Practices for Menu Selling

I was asked recently to opine on this topic, which I do today with some reservation, for I can see the venerable four-column menu approaching its sell-by date. The image shown here is a MenuVantage prototype from 2003. Don’t get me wrong. As I wrote here, this is still the best tool for the traditional setting in the F&I office … for as long as that setting prevails.

Best practices for menu selling split into two broad categories: those that are good for selling, and those that are good for compliance. I will present them in that order.

Every product appropriate to the transaction type and “car status” of the current deal (i.e. Used Lease) should appear in column one. Some menu systems use deal templates, making it easy to select the proper layout every time.

The home court advantage in the F&I suite is that you can do a four-column menu, and there is a professional there to present it.

For most systems, column one automatically drives the layout of the accept/decline “waiver” form. This is best practice for compliance, and it’s good selling too. Why have a product that you only present on special occasions?

The practical limit for products in column one is six, maybe eight, so choose wisely when laying out the menu template. Using bundles will allow you to squeeze in more products. I generally don’t like bundled products, as I wrote here, but this is a reason to use them.

Every menu should include a second, longer term, with the correct APR for that term. There is a charming story about this in Six Month Term Bump, plus a downloadable spreadsheet. Twelve months is overkill, and likely to raise an objection.

The amount of product you can finance without changing the monthly payment is given by this formula. Without doing the annuity math, a good approximation is: base payment times five.The monthly payment in column four should be roughly $30 more than the base payment without products. That way, you draw the customer’s attention into the menu without a big price barrier. Likewise, payments should increase in small increments from right to left across the bottom of the menu.

Obviously, the increments will be larger for more expensive deals, say 10% of the base payment. This is easy to do, if you are manually setting up each menu. It takes a little more planning to do this with templates. You can either tweak the individual products at deal time, or you can set up a different template for highline vehicles.

For example, offer the platinum VSC coverage in column one and the gold in column two. By the way, do not reuse the VSC coverage choices (like gold, silver, and platinum) as your column headings. That’s an obvious source of confusion. Finally, your menu system should feature sales tools and custom content for each product, like the famous depreciation chart for GAP.

I have a few more recommendations, related to compliance. If you already have a good grasp of unfair and deceptive practices, you can skip this part. Be warned, though, that consumer watchdogs and regulatory agencies are looking over your shoulder.

The chart below (and the pull quote) is from the National Consumer Law Center. You can tell that the dealer in green is using a menu system with a fixed markup over dealer cost. The dealer in red is certainly making more PVR but he is also courting a federal discrimination charge.

Menu trainers like to say, “present all the products to all the customers, all the time.” They might add, “at the same price.” The NCLC report goes on to show that minority car buyers are systemically charged more for the same products. Some dealers simply don’t allow the F&I manager to vary from the calculated retail price. In states like Florida, that’s the law.

Giving F&I managers the discretion to charge different consumers different prices for the same product … is a recipe for abuse.

The menu should display the price of each product, not just the package price. Some turn this into a selling feature by also showing the price as a daily amount. It makes a good layout to have the most expensive product at the top, with prices descending down the column.

All of these measures require some kind of audit trail. I have seen some very strong systems that track exactly what was presented, by whom, when, for how much, and whether the price was changed. At a minimum, you should collect the customer’s signature on the waiver form, with all the products, their prices, and your standard disclosure text.

Next week, I will resume writing about the brave new world of flow selling, self-closing, and predictive analytics. We may find that many of these practices – especially regarding compliance – are still relevant.